Airline Fraud and the Dreaded Last Minute Traveler

Airlines have been troubled by fraud since they began selling tickets online. The problem is so big that there are various reports, research groups, and even conventions dedicated just to airline fraud.

Airlines also face an interesting set of challenges, thin margins, and some inherent issues that further extrapolate losses. A fraudulent ticket purchase results in what I call a “triple whammy”:

A chargeback processing fee from the acquirer, plus the human resources needed to work the chargeback case

Lost revenue from the fraud chargeback

Lost opportunity (spoilage) to sell ticket to a legitimate customer

Over the years, airlines and fraud prevention companies have been working hard to reduce ticketing fraud.

At first we were very successful and were able to stop a bulk of the fraud upfront. A small percentage (1-3%) of the online ticket sales fell into a “grey” area. This is where the fraud prevention system couldn’t decide if the transaction was good or bad. This subset of transactions required costly and time-consuming manual review by a fraud analyst, but it worked and the ROI was easy to see.

Then, the fraudsters got smarter.

Instead of booking their tickets in advance and giving the airline’s fraud analyst days, weeks, or even months to review the transaction, they started booking last minute.

It was a clever and highly effective approach: a fraudster would book the ticket the night before and fly out in the morning. By the time the first shift of fraud analysts started their day, the fraudsters were already in the sky.

So, why not just reject “last minute” bookings?

Unfortunately, it is not that simple because last minute bookings are actually quite common. There are four categories of people that fly last minute:

Business travelers

Last minute bargain hunters

People with an emergency

Fraudsters

You don’t want to cancel a ticket for a business traveler, or someone going on vacation, and certainly not someone that has an emergency such as reaching an ill family member or attending a funeral. Any airline is certain to get blasted on Twitter these days when something like that happens.

Nowadays, when I walk in to an airline and talk to their fraud team I ask, “What is your manual review rate?”

The numbers I hear keep going up: 5%, 6%, 7%.

Then I ask, “What percent of those are last minute bookings?” and almost in unison I hear: “most of them”

Imagine a large air carrier selling a million tickets a month. That is around 33,333 tickets a day, with 5% of them (about 1,666 tickets) needing to be reviewed in less than 24 hours. A really good analyst can review around 100 tickets in an 8 hour shift, which means you need a team of about 16 people staggered over multiple shifts just so you don’t have gaps in coverage.

Finally, I ask “How do you get through it all?” to which I hear one of three answers:

We don’t always (meaning some set of risky transactions just get let go)

We outsource it to a third party (which is insanely expensive)

We offshore it (which is ineffective, because it is very hard for offshore analysts to review airline tickets without intimate knowledge of the country, language, geography, etc.)

So, why is this happening and why are these review rates so high? Simple: because the fraud prevention systems in the market don’t have enough data to make an informed decision.

Current fraud prevention systems only see a portion of the consumer journey: the end of it.

With so much fraud being concentrated in the “last minute” booking segment, all the risk models flag these last minute bookings as high risk when a majority (around 75%) of them are truly not.

Consider the flow of events pictured below, which looks suspicious to most of the fraud systems and adds to the high review rate.

The fraud prevention systems deployed at airlines today see a last minute booking, along with the travelers information, itinerary, IP address, and potentially a device ID. If the traveler is a frequent flyer with the airlines they might be on a precompiled list of good travelers and bypass the fraud checks, but more commonly they’re not, and they end up being flagged as high risk then sent to manual review.

Having spent many years tackling airline fraud when I started building Precognitive’s platform, I was very aware of these issues and made it a point to develop a platform that could see pre-transactional data.

We can track a consumer across devices, identify if a consumer is displaying intent for a particular itinerary, see how many times they showed that intent and over what period of time, and determine if the combined device, behavioral, and transactional data are indicative of a legitimate consumer or those of a fraudster.

Let’s take a second look at that same transaction, the way our platform sees it.

We see the same consumer looking at a single itinerary over a period of weeks, interacting with the airline by clicking on a marketing email, and finally, a last minute purchase.

This is a common purchase pattern for last minute bargain hunters and we can predict before they transact if the purchase is going to be legitimate. In fact, our data shows most leisure travelers start looking at flights around 45 days before they buy. Current fraud prevention systems miss out on that wealth of data.

The end result is a high informed decision.

One that provides full visibility of the consumer over multiple visits and leads to lower manual review rates, lower false positives, less friction for the consumer, and huge cost savings for the airlines. Anyone with experience in fraud prevention can tell you better data equals better decisions. It is simple because you just need the right technology.

Airlines frequently ask me, “What should we target as our manual review rate?” These days, I always give the same answer: Zero percent.

Learn more about how we help reduce ticketing fraud, manual reviews, and other fraud issues airlines are facing today.